Tackling Supply Chain Security

Vulnerabilities and Loss-Combating Measures Retailers Can Take

The supply chain has long been a point of vulnerability for retailers. The risks are significant, as goods travel from manufacturing plants, changing hands across countries, and making their way through a complex network of transportation routes, locations and parties. The sheer volume of goods in transport makes it simply impossible to check every container. Over weeks or even months, items are loaded and unloaded at several different locations, increasing the likelihood of damage or a security breach. These conditions present risk of loss, or worse -- terrorism -- to retailers. Subject to theft, damage and vandalism, goods on the long journey from their point of manufacture to store shelves must be secured and monitored or risk arriving at the retail location with significant loss-causing potential.

The challenge in recommending supply chain protection tactics is that every retailer faces a unique situation. Large retailers often choose to comply with Customs Trade Partnership Against Terrorism (CTPAT), which was put in place after the 9/11 commission report and asks businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain. In addition, large retailers usually have regional warehouses and take ownership of product long before it reaches store shelves, in some ways making it easier to manage the integrity of product handling. However, there can be greater risks of employee theft and product loss or damage along the way, for which the retailer is responsible.

Small retailers, on the other hand, may take ownership of product very late in the process, relying on direct store deliveries (DSDs), third-party logistics deliveries or vendor-managed items. Their challenge in maintaining supply chain integrity is in some ways less complex than the job of large retailers. But in other ways, their complete lack of control of goods through the process makes it more difficult.

Is it possible to propose best practices that could improve supply chain management for all retailers? As challenging as it is, I would like to attempt to do so in the form of “the golden rules of supply chain management.” These three golden rules are designed to make retailers take a step back and think from a strategic level about the things they can and should be doing to protect themselves from losses due to breaches in integrity as goods pass through the supply chain.

Rule #1: Control what you can
Perhaps the most difficult aspect of maintaining supply chain integrity is the fact that goods pass through so many different networks that it is simply impossible to have complete control. It is challenging enough to effectively manage processes and people in your own organization, and exponentially more difficult to control those outside your organization. Yet retailers must make decisions with finances and operations in mind, meaning that it’s not always possible to take possession of goods and have warehouses in which to store and distribute them. Small retailers may only be able to turn partial deliveries of inventory, forcing them to receive partial shipments to the store. Delivery errors are more likely in these scenarios, where trucks are packed with pallets staged in the trailer in order of deliveries. It can be difficult for drivers to know where one order begins and another ends, subjecting the process to increased error. Damages can also occur from items being pulled in and out of trucks several times, saddling retailers with losses the moment the product reaches the store.

The key for retailers is to decide what they can control and accept what they can’t. Retailers should choose suppliers who will work with them to build secure processes and reporting that help to track and minimize errors. If suppliers are unwilling to collaborate, retailers should consider switching vendors. Another key is to put efforts into managing and honing internal processes and the losses that occur once retailers are in possession of the goods. For example, consistent receiving processes and random audits of vendor security processes can greatly reduce losses due to supply chain errors or theft.

Rule #2: Get creative
Savvy retailers who are willing to get creative when structuring deals with vendors often minimize risk of loss and simultaneously create win-win partnerships that are ideal for both vendor and retailer. Vendor-managed goods are one example. This arrangement is particularly common with specialty seasonal merchandise such as live plants, flowers and pets. Vendor managed goods are cared for and owned by the vendor until the item is actually sold at the point of sale. This reduces the retailer’s potential for loss because they are not financially responsible for damaged, perishable or unsold goods. Likewise, this agreement protects vendors from retailers who may file claims against items that were not properly handled and maintained in the store. This is particularly true for plants and other live merchandise that the retail staff may not be equipped to handle.

Another example is Advanced Ship Notice (ASN). In this arrangement, the retailer receives an electronic packing slip for the items received. They immediately release payment to the vendor. Included in the invoice is an agreed-upon credit, intended to account for miscounts, losses and damages. This percentage credit is designed to cover potential losses and also saves the retailer the time and resources that would be required to go through the counting, verification and billing process. The vendor receives predictable sales and early payment. The vendor reaps a time and resource savings and automatically covers their losses. ASNs are a good solution when working with dependable, high volume vendors.

These arrangements may not be right for every retailer and every situation, but they exemplify some creative solutions that show how retailers can work with vendors to control and manage losses.

Rule #3: Audit yourself
When it comes to managing the security of the supply chain, audits are invaluable. They should be used to verify that internal processes are being properly and consistently implemented. Whether it’s receiving processes, loss-reporting or vendor management processes, audits help retailers verify that processes intended to curb losses are being used.

Audits can also be used to capture snapshots of what is happening so that retailers can raise red flags when necessary. For example, it is impossible to count every box or inspect every pallet of a shipment. However, by selecting inventory at random and conducting a series of checks, the retailer can potentially identify problems. For example, by counting goods or boxes on a random pallet, the retailer is more likely to identify an instance of either intentional or unintentional incorrect volume. Likewise, a random inspection of goods inside a damaged box can reveal items that may have been damaged in shipment and trigger the request for improved packaging. Regularly conducted, random audits also help keep vendors true to their word and their own processes.

Collaborative annual or quarterly audits can help vendors and retailers work better together to secure the supply chain. Audits should be designed not only to verify proper implementation, but also to help pinpoint the root causes of problems in the supply chain. When audits indicate a process failure, retailers can take action by assigning immediate follow-up tasks and notifying key players within the organization about problems that require further investigation.

The above golden rules can go a long way in helping any size organization identify and tackle both purposeful and unintended losses in the supply chain.

Eric White leads the retail strategy practice at Wren, providers of physical security solutions used by some of the world’s most innovative and respected retailers. White has 20 years of experience in loss prevention, asset protection and physical security, having served at Walmart and The Home Depot. White writes about his experiences in the Wren blog (wrensolutions.com/wren_blog). He can be reached at eric.white@wrensolutions.com.

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